Fed has raised interest rates so now how to handle your finances?

Let me inform you that Federal Reserve’s has raised its benchmark lending rate. I am sure you are hoping that your savings account will start paying more than a mere fraction of one percent in interest. I can very well understand you are worried that the monthly cost of your adjustable rate mortgage might rise sharply.

Now, let me give you good news, fed well you needn’t expect any abrupt changes. The Federal Reserve has set in motion a gradual increase in the federal funds rate which is basically the interest rate banks and depository institution charges one another for overnight loans.

However that fedrates hike rate, central as it is to the making of monitory policy has only a wobbly effect on how banks and other financial institutions price certain loans and savings vehicles. In general consumers may be able to find slightly higher yielding savings accounts and certificates of deposits, though the return will still be meager.

Let me remind you that the Federal Reserve’s cost of borrowing is expected to rise, but only slightly with variable effects on what banks charge for credit cards, home equity lines of credit, adjustable rate mortgages, and auto loans along with student loans.

Now if the Fed sticks to the script it has laid out for us then there should be little impact on consumers at least through much of 2016. This script can easily change if economic growth, jobs and inflation deviate from expectation.

In my opinion the fed rates hike calls for short term rates to rise gradually to about 1 percent by the end of next year. So eventually the impact on consumers will be more pronounced. Now if Fed continues to tighten in 2017, as they now forecast, stock, bond and currency markets will surely come under pressure. So instead of trying to predict the near term future, you should be wiser to ensure that your investments are well diversified and positioned for the long term.